April 27, 2006

Party of Stupidity Watch II

The Republicans. Tim Haab is on the case:

Environmental Economics: Read this Quick: Gas Rebate Proposal: GOP senator are proposing a $100 tax credit to "offset the pain of higher pump prices for gasoline." I have to post this quickly because there is an economic lesson to be learned, but this thing is likely to be voted down before I can finish typing.

So what's the lesson? Consumers respond to prices at the margin--that is behavior changes when the price of the last unit of a good purhased changes. Imagine the local street hot-dog vendor us trying to get you to buy more hot dogs. Which is more likely to increase hot dog sales--the vendor giving you $5 or the vendor dropping his price by 10%? Now, I've already argued that the evil gas producers can't lower their prices on a whim, but the government could if they wanted to--by reducing the per gallon gas tax. Now that would be just plain silly--right?

My point is, this gas tax rebate proposal will have absolutely no effect on gas prices or gas consumption behavior. It will simply give everyone a $100 bonus to do with as they see fit.

If the goal of the Senate is to reduce the burden on those spending the most on gas, a lump-sum rebate won't do it. IF the goal is to just give everyone $100 and see what happens, this looks like the perfect proposal. And as John has repeatedly and convincingly argued...IF the goal is to reduce dependence on gas powered vehicles, then we need an increase in the gas tax.

This thing is dead in the water because the tax rebate proposal contains an amendment allowing drilling in ANWR.

Comments

Party of Stupidity Watch II

The Republicans. Tim Haab is on the case:

Environmental Economics: Read this Quick: Gas Rebate Proposal: GOP senator are proposing a $100 tax credit to "offset the pain of higher pump prices for gasoline." I have to post this quickly because there is an economic lesson to be learned, but this thing is likely to be voted down before I can finish typing.

So what's the lesson? Consumers respond to prices at the margin--that is behavior changes when the price of the last unit of a good purhased changes. Imagine the local street hot-dog vendor us trying to get you to buy more hot dogs. Which is more likely to increase hot dog sales--the vendor giving you $5 or the vendor dropping his price by 10%? Now, I've already argued that the evil gas producers can't lower their prices on a whim, but the government could if they wanted to--by reducing the per gallon gas tax. Now that would be just plain silly--right?

My point is, this gas tax rebate proposal will have absolutely no effect on gas prices or gas consumption behavior. It will simply give everyone a $100 bonus to do with as they see fit.

If the goal of the Senate is to reduce the burden on those spending the most on gas, a lump-sum rebate won't do it. IF the goal is to just give everyone $100 and see what happens, this looks like the perfect proposal. And as John has repeatedly and convincingly argued...IF the goal is to reduce dependence on gas powered vehicles, then we need an increase in the gas tax.

This thing is dead in the water because the tax rebate proposal contains an amendment allowing drilling in ANWR.